Budget deficit narrows to 5.8% of GDP after series of tax hikes takes effect

Israel posts a budget deficit of 5.8 percent of gross domestic product (GDP) in the first month of the year, narrowing from 6.9% in December, following a series of tax hikes that came into effect on January 1, according to preliminary figures released by the Finance Ministry.

In January, state revenues jumped 45% to NIS 63.1 billion ($17.7 billion) from NIS 43.1 billion year-on-year bolstered by rising tax revenues. Income from direct taxes soared by almost 61% to NIS 41.3 billion versus the same month last year and indirect taxes rose 22.5% to NIS 20.2 billion.

On January 1, tax hikes came into effect to boost state income and fill a fiscal gap amid high defense expenses in the 15-month multifront war. Value-added tax rose from 17% to 18%. VAT is a consumption tax that is collected through the purchase of goods and services, and is levied on most consumer goods and services, except for fresh produce. Income from VAT collection in January increased by 26% to NIS 16.7 billion year-on-year, according to the Israel Tax Authority.

Meanwhile, government expenditure in January declined 3.5% to NIS 39.9 billion from NIS 41.4 billion during the same month last year due to lower war costs, the ministry says.